Market Analysis Summary: USD/JPY and AUD/USD Forecasts
Date: July 10, 2025
Key Highlights
- USD/JPY is under pressure as tariffs impact Japan's economy, with a focus on the upcoming trade talks.
- AUD/USD has seen a rise following the RBA's decision to hold interest rates, with limited fallout expected from US tariffs.
- Comments from Federal Reserve officials may influence market sentiment and interest rate differentials.
USD/JPY Analysis
The USD/JPY pair is closely watched as trade negotiations between the US and Japan approach a critical deadline. President Trump has announced a 25% tariff on Japanese goods, which could severely affect Japan's economy and the Bank of Japan's (BoJ) monetary policy. The current 10% tariff on most Japanese goods, alongside a 25% tariff on automobiles, has led to a significant drop in export prices, particularly in the automotive sector, which is crucial for Japan's GDP.
Recent data shows that the export price index for vehicles to the US fell by 19.4% year-on-year in June, the largest decline on record. This decline could lead to reduced wage growth and household spending, further dampening inflation and economic growth. As private consumption accounts for over 50% of Japan's GDP, a slowdown in spending could hinder the BoJ's ability to raise interest rates in 2025.
On July 9, USD/JPY reached a high of 147.181, driven by concerns over tariffs and their impact on the BoJ's policy stance. If trade talks stall, it could further diminish expectations for a rate hike from the BoJ, negatively affecting the Yen. Conversely, progress in negotiations could lead to a more hawkish stance from the BoJ, increasing demand for the Yen.
Producer Prices and Inflation
Japan's producer prices for June indicated a year-on-year increase of 2.9%, down from 3.3% in May, reflecting the negative impact of tariffs on inflation. The auto sector, a significant contributor to Japan's economy, is particularly vulnerable, as it accounted for 30% of total exports to the US in 2024.
AUD/USD Analysis
The AUD/USD pair has risen to $0.65941, its highest level since November 2024, following the Reserve Bank of Australia's (RBA) decision to maintain interest rates. RBA Governor Michele Bullock indicated that while US tariffs would have some impact on Australia, it would likely be less severe than on the US economy. The RBA's focus remains on the importance of a US-China trade deal, as Australia has a high trade-to-GDP ratio, with China being a major trading partner.
Recent developments in US-China trade relations, including tariffs on transshipments from Asia, could affect Australian exports. The AUD/USD outlook remains sensitive to these trade dynamics, with potential bullish scenarios arising from expectations of a US-China trade deal or further policy support from Beijing.
Market Drivers and Scenarios
For USD/JPY, key scenarios include:
- Bearish Scenario: Progress in US-Japan trade talks, hawkish BoJ signals, or dovish Fed commentary could push USD/JPY towards the 145 level.
- Bullish Scenario: Escalating trade tensions or dovish BoJ signals may drive the pair towards 147.
For AUD/USD, potential scenarios include:
- Bearish Scenario: Rising US-China trade tensions could pull AUD/USD towards the $0.65 support level.
- Bullish Scenario: Expectations of a US-China trade deal could drive AUD/USD towards $0.665.
Conclusion
Traders should closely monitor developments in US-Japan and US-China trade negotiations, as well as commentary from Federal Reserve officials, as these factors will significantly influence the USD/JPY and AUD/USD currency pairs in the near term.